Retail giant Debenhams has reported a combined pension deficit of £4.1m for its pension schemes under IAS 19 accounting standards as of 3 September 2016 from a surplus of £26.2m on 29 August last year.

It said the deficit was a result of the reduction in bond yields which increases pension liabilities. This was in part, offset by the growth in the pension asset values.

At the company’s triennial actuarial valuation in June 2015, it was agreed that the group would contribute £9.5m per annum to its pension schemes. An increase of £0.6m from its previous £8.9m per annum contribution. The increased sum will remain until 31 March 2022.

Debenhams also agreed to continue to fund non-investment expenses and levies of the pension schemes, including payments to the Pension Protection Fund.

The Debenhams Group runs a number of pension schemes for its employees including the Debenhams Retirement Scheme and the Debenhams Executive Pension Plan. These both closed to future accrual in October 2006. However, current Debenhams' employees are able to contribute to a DC scheme.

“The IAS19 pension deficit is better than expected at just £4.1m. While liabilities rose by c.£280m as expected, the asset performance rose almost as strongly, reflecting a higher degree of asset/liability matching than expected,” Stifel analysts noted.

Earlier this month Morgan Stanley downgraded Debenhams’ price target and rating from ‘overweight’ to ‘equalweight’ due to pension deficit concerns. The bank believed that the company would report a deficit of over £200m.

As a result of this prediction, Morgan Stanley has reduced the Debenhams' price target from 95p to 70p per share.

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